How much is good enough?
Over the last decade, I had the opportunity to manage the money of a lot of successful people in the corporate and startup world. The equity stake sale, high compensation, inheritance, and in general India’s growth are often the reasons for the excesses. In this article, I will try to explore what is the limit of those excesses.
Our nature is abundant in resources and there is no dearth of asking for more. However, at some point we define the limit to our race, it can’t be forever.
How to find peace at work?
One of the ways is to be meaningfully involved in your work every single day. The challenges should be just enough for a person to be motivated. If there is no challenge, there is no motivation and if the work is too challenging, again the motivation declines.
Money is an outcome of the quality of work. As far as you continue to improve your craft, your command to ask for more money increases. Not every lawyer, doctor, or other professional is paid the same, what they bring to the table, they command appropriate compensation.
Most people, if not directly but indirectly work for money. Lack of money can be quite demotivating. However, an abundance of material success is no guarantee of finding peace.
How much money is good enough to find peace? Once you attain that stage, you can still strive to earn more, but you don’t have to work for the basics of life.
Everyone should break their life goals into needs, wants, and aspirations. Your personality defines what kind of goals you have. For one, going on an international vacation may be a need and for the other could be an aspiration. This breakup of goals is the first step to defining what is enough.
What is good enough?
The funds that you require to meet your needs are ‘good enough. After working with so many investors, I have realized that the baseline of needs is usually common.
Everyone at one point will retire. You need to have sufficient funds to meet your retirement needs.
Retirement fund = Living expense X (Life expectancy – Current age)
Someone in his 40s with a living expense of 1.5L will need a retirement fund as:
(1.5 X 12 months) X (90 – 40) = Rs 9 crores
2. Kid's College
A lot of people want to send their kids abroad for higher education. There must be a financial corpus to meet this goal, but how much?
Indian College (four years): Rs 50 lakhs (inflation 10% pa)
US College (four years): Rs 2 crores (inflation 5% pa)
Depending upon how many years, you can define the corpus.
3. Parents care
At some time, our parents become dependent on us. As a moral duty, we must take care of them both physically and financially. If the housing need is not there, 40-50k per month is sufficient to meet parents’ financial needs.
Parents fund = Living expense X (Parent’s Life expectancy – Parent’s current age)
= (50k X 12 months) X (85 – 70) = Rs 90 lakhs
4. Primary house
People may aspire to own many houses, but one house used for primary residential purposes is a ‘need’. The cost of the house is part of the ‘need’.
A sum of 1, 2, 3, and 4 would provide a broad number of what is enough. As you progress, your goals keep changing and so will the definition of ‘what is enough?’.
Based on the above examples:
1. Retirement fund: Rs 9 crores
2. Kids fund: Rs 2 crores (today’s cost)
3. Parents: Rs 90 lakh
4. House: Rs 2.5 crores (assumed)
Total good enough funds: ~Rs 14-15 crores
You can bookmark this page. This has all the calculators to determine what is enough at each stage of your life.
In case you want step-by-step guidance, you can refer to this page which has videos to help you navigate through your journey.